Bank of America said Wednesday it has agreed to pay $9.5 billion in a settlement with the Federal Housing Finance Agency, a deal that resolves one of the largest remaining mortgage-backed securities cases the bank faced.
The accord ends claims that the Charlotte bank violated securities law while selling mortgage bonds to mortgage giants Fannie Mae and Freddie Mac. Bank of America said it will pay $6.3 billion in cash and repurchase about $3.2 billion in securities at market value.
Bank of America does not admit liability or wrongdoing in the settlement.
The settlement covers about $57.5 billion in mortgage-backed securities sold by Bank of America and subsidiaries Countrywide Financial and Merrill Lynch between 2005 and 2007. The Federal Housing Finance Agency is the regulator overseeing Fannie Mae and Freddie Mac.
Digital Access for only $0.99
For the most comprehensive local coverage, subscribe today.
It brings an end to one of the biggest remaining legal questions hanging over Bank of America. The Charlotte bank has spent more than $60 billion in settlements and legal fees in the past five years. Some analysts had predicted this settlement could reach as high as $11 billion.
The Federal Housing Finance Agency sued Bank of America and other banks in 2011, alleging they misrepresented the quality of mortgage-backed securities sold to Fannie Mae and Freddie Mac that later went sour. Bank of America and its subsidiaries had sold the largest percentage of the securities.
The banks have steadily agreed to settlements with the regulator. The agency announced a $5.1 billion settlement with JPMorgan Chase in October 2013. Morgan Stanley settled for $1.25 billion in early 2014.
“This resolution represents a reasonable and prudent settlement of these cases,” FHFA director Mel Watt said in a statement Wednesday. Watt is a former U.S. representative from Charlotte.
“This settlement also represents an important step in helping restore stability to our broader mortgage market and moving to bring back the role of private firms in providing mortgage credit.”
The settlement will make a large dent in Bank of America’s first-quarter earnings, which are set to be released April 16. The bank said the deal would reduce its pre-tax earnings by $3.7 billion, or 21 cents per share.
Bank of America earned $3.2 billion for shareholders in the fourth quarter.
The settlement is not the end of legal inquires into Bank of America’s mortgage-backed securities. The bank said it continues to cooperate with investigations by the Department of Justice, state attorneys general and other government agencies.